The breaking down of equity buckets

Investors at the Conexus Financial Equities Summit discussed the emerging break down of allocation buckets when investing in equities, as a result of favoured fund managers reaching capacity constraints because of the growth of superannuation funds.

As funds continue to get larger they might need to consider giving managers more flexibility with mandates, says Brett Chatfield who is an investment manager for public markets at Cbus.

“Through time as funds get larger they have more difficulty getting capacity with favoured managers.

“As we get bigger we will give managers more flexibility, so for example Australian equities managers can go offshore,” he says.

While Cbus does allocate across equities buckets of Australian equities, international equities and emerging market equities it examines the portfolio in total on a look-through basis. In the past couple of years Cbus has implemented BarraOne – a research driven platform that helps asset managers identify and manage risk exposures.

Troy Rieck, executive officer of liability management at Equipsuper, said that one of the limitations was the real world application of ideas.

“In the real world you need to look at who will manage it, how they will manage it and rebalance it,” he said, adding that intellectual ideas were only good if they could be implemented.

Dmitry Capel, investment manager of equities and governance at Hostplus, says the fund allocates broadly across other asset classes, but for equities it still puts investments in domestic, international and emerging market buckets.

“We are comfortable with geographic buckets. But one thing to think about in listed markets is where revenues are coming from. This means that we might have a more global portfolio than we might think.”

The panel, which also included Paul Kessell, chief investment officer of Kinetic Super, and Steve Merlicek, chief investment officer of IOOF, also discussed the domestic bias in equities.

“It is interesting that we focus on franking credit, tax and imputation credits when we talk about this home bias, and not on the opportunity set offshore which is pretty good compared to Australian equities,” Rieck said.

“The capital decision to push offshore hasn’t been there. Given the opportunity set it is interesting why people aren’t doing more.”

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